Circuit Split Over Independent Contractors Deepens

As political controversy and litigation swirl around the definition of an employee versus an independent contractor, the 9th Circuit ratcheted up the debate by applying a federal anti-discrimination law in a way that covers both employees and independent contractors.

A key motivation for hiring independent contractors is that they save an employer money in employment taxes, benefits, insurance premiums and claims under the Americans With Disabilities Act (ADA), which specifically covers only employees. At issue in the 9th Circuit case was whether the Rehabilitation Act of 1973, which bans discrimination based on disabilities by government entities in "any program or activity receiving federal financial assistance," also covers only employees, not independent contractors. In November 2009 the 9th Circuit, following the lead of the 10th Circuit, said no. But the 6th and 8th Circuits have previously ruled the opposite way.

"It's a significant split," says Michael Schmidt, a member at Cozen O'Connor.

The 9th Circuit decision involved a breach of contract and disability discrimination suit that Dr. Lester Fleming, an anesthesiologist, filed against a Phoenix-based medical center and anesthesia service provider. Fleming claimed they declined to accommodate the special scheduling his sickle cell anemia requires.

Fleming was an independent contractor, and his status in this regard was not in dispute in his appeal. Fleming maintained that his claim of disability-based discrimination is covered by the Rehabilitation Act of 1973, even in his role as an independent contractor.

In an opinion written by Judge Jay Bybee, the 9th Circuit reversed the district court and found that Fleming could sue under the act.

Both cases centered on whether the right to sue under the Rehabilitation Act applies to more than just employees. The act says disabled "individuals" are not to be "excluded from the participation in, be denied the benefits of, or be subject to discrimination under any program or activity" that receives federal funds.

"The ADA talks about employees; the Rehabilitation Act talks about people," says Stanley Lubin, a shareholder at Lubin & Enoch, who represents Fleming. "Under the Rehabilitation Act, independent contractors are protected. That is not the case with the ADA."

Circuits in Conflict

But the 6th Circuit (Hiler v. Brown, 1999) and 8th Circuit (Wojewski v. Rapid City Regional Hospital, 2006) have ruled the other way based on the fact that the Rehabilitation Act's standards for determining an actionable violation are drawn from Title I of ADA, which expressly applies only to employees.

Those courts ruled that the Rehabilitation Act incorporates all of the ADA's Title I provisions, including its limitation to employees.

In contrast, the 9th and 10th Circuits found that when Congress updated the Rehabilitation Act, it only adopted the Title I's list of standards for disability discrimination violations, not its limited scope.

Finding that Congress intended this selective transfer of text from one statute to another is troubling, says Ann Margaret Pointer, a partner at Fisher & Phillips. In effect, she adds, the 9th Circuit has taken a vital part of the ADA Title I language out of context.

"Employment means something different than having a contractual relationship," she says. "When companies contract for services instead of hiring people as employees, often what they are doing is to try to obtain a particular service or result at a predictable price, and the company is willing to forego managing, knowing about or directing details about how the job is done."

The 9th Circuit opinion means the Rehabilitation Act would require a covered business to engage in the ADA's interactive process with any independent contractor with a disability--"be it a physician, an engineer or a lawyer, lots of people could be hired as a contractor," she says. "It seems to me to be a great leap to engraft rules that apply to employment to an independent contract."

Employer Heads Up

The 9th Circuit ruling could mean new protections for workers but new roadblocks to obtaining work as an independent contractor, as employers may be less willing to contract with workers with disabilities.

Nonetheless, companies covered by the Rehabilitation Act should take notice of Yuma.

"I would urge employers to keep in mind that this case is out there, whether or not it is in their circuit," says Maria Greco Danaher, a shareholder at Ogletree Deakins. "This is a heads up to employers. Don't think that just because an individual is not employed you don't have to pay attention to issues involving a disability."

Whether the Supreme Court will take up the issue to resolve the circuit split is unknown. "What we don't want to happen is to advise employers not worry about it and then next year have the Supreme Court decide differently," Danaher says. "We tell them they are not compelled because it is a different circuit, but as a business issue it's in their best interest to be in compliance."